The power system challenge for the new government: National Energy System Operator

Decarbonising electricity supply requires a fundamental rewiring of system planning and market design processes. These changes are well underway in Great Britain, with a new independent system planner and operator – the National Energy System Operator (NESO) – due to be established this summer. It will have a statutory duty to provide advice to the government and regulator to support their policy decision-making as well as planning electricity and gas (including hydrogen) networks at transmission and distribution levels. NESO will become the brain behind the energy system transition and a successful transition will demand that this brain is working as effectively as possible.
The role of NESO as an independent advisor
Politicians will set high-level objectives related to overall emissions reduction alongside deployment targets for certain technologies. It will be the job of NESO to convert these into an overall plan to produce a secure and efficient power system, establishing the requirement for network and other assets such as energy storage. To provide good advice, NESO will have to make a range of assumptions about the future. It is vital that these are supported by the latest evidence and reflect inherent uncertainties.
It is inevitable that this exercise will raise uncomfortable issues for politicians. It could show that certain targets will be very challenging to deliver. It could also show that the combination of technology targets set by government creates much higher costs for consumers than alternatives. It will almost certainly highlight the evolving nature of electricity security with demand for power rising rapidly as we electrify transport, heating and industry and much of the electricity being produced from variable renewable sources such as wind and solar.
NESO will need to quickly establish its position as an independent and authoritative advisor, dealing with highly important and potentially controversial issues. To do this, two issues must be tackled with urgency.

The new security paradigm
Firstly, NESO must identify the key risks to security of supply in a renewables-based energy system and how these risks will be managed. Smart controls on electrical devices such as heat pumps and electric vehicles will allow consumers to shift demand from periods of high to low prices and we should no longer design the system to meet the unlikely situation where all consumers use all their devices at the same time. Smart charging can save energy and reduce energy bills. Products and services that shift peak energy demand – known collectively as demand side response – will be a central and desirable feature of the future energy system. NESO must ensure that empowering consumers to control and shift their demand, in addition to upgrading the efficiency of buildings, remain top priorities for policy makers and a critical element of the security of supply strategy.
However, it will not always be possible to shift consumption to a period of low expected price, especially when high prices are sustained, such as during long periods of dull, windless cold weather. The energy system must have sufficient long-duration storage capacity to cope with these situations and NESO will need to define how much is needed, and how this can be delivered in the most cost-effective way.
Beyond the need for demand side response, buildings efficiency and long-duration storage, trading electricity with our European neighbours will become increasingly important in ensuring energy security. The development of the European electricity system must not be a matter of guesswork for NESO. It must work closely with European system planners and ensure electricity can be efficiently traded between our increasingly interconnected networks. This includes adapting plans for offshore network development to make the most of these trading opportunities.

System efficiency
Another imperative for NESO is to provide a clear perspective on system efficiency. It should not simply accept the current tangled web of technology targets as a given. Instead, it should develop a view on the optimal technology mix that will provide a risk-managed and least cost delivery of decarbonisation and security requirements. For example, it should highlight the critical importance of improving the energy efficiency of buildings. This ‘benchmark system’ can be used to help government understand the cost implications of individual technology targets and consider if they are justified given wider economic or industrial benefits. NESO should set out its latest understanding of the benchmark system that will efficiently deliver a decarbonised and secure energy system in an annual report to government to transparently demonstrate how it is focusing on these issues. This will help to reduce the risk that our power system is designed by corporations with major vested interests that could lead to higher bills for consumers.
Government will need help if it is to turn its clean power aspiration into successful delivery. NESO will have a critical role to play. It must learn the art of providing advice which is genuinely independent but useful to politicians who are keen to avoid controversy. This must be founded on an approach which ensures energy security whilst minimising costs for households. Long term storage, flexible demand and system efficiency will be central to building that system.

Simon is Director of Trilemma UK and a Senior Associate at E3G. He has worked in the power industry since before privatisation, including 5 years as Director of Strategy and Policy at E.ON UK. His recent work has focused on supporting climate think tank E3G deliver on its goal to translate climate politics, economics and policies into action